Commercial real estate in Canada continues to stand out as a great choice for security, strong yields and long-term wealth. Yet, there are a variety of factors that result in the true net performance of any individual investment. Often it’s not what you know, it’s what you don’t know and are willing to learn that really makes the difference in the outcome.
Here are four ways to help you better analyze opportunities, preserve assets and unlock their full potential:
1. Proper Tenant Selection
Together with your group of experienced leasing agents, determine which tenants are best now, and looking forward. The reason you think about today and in the future is due to changes that occur over time as industries, technology and consumer tastes evolve and government oversight loosens. Right now in places like Alberta, many are excited about the huge potential boom in tenant demand. Hundreds of new shops are opening as new tenants are interested in retail space, due to recent policy changes in various industries. As a commercial real estate investor in Canada, being in tune with policy changes can help you to capitalize on tenant demand in various industries through planning and proper tenant selection.
2. A Good Tenant Mix
In order to have a good tenant mix, you have to know the winning recipe. It’s not just about picking a few strong or high yielding tenants, as some large anchor tenants may appear to be safe bets, but may have more negotiating power. Some newer startups may have less financial strength but may yield more in rent per square foot. Different types of businesses and brands can work together to attract more traffic and higher spending consumers. Ultimately, the winning recipe comes down to your system in curating the right tenant mix to optimize your entire shopping plaza and attract a broad range of consumers
3. How to Maximize Leasable Space
Commercial property performance is all about getting the most out of the space you have. It’s important to have an eye for the redevelopment of a property to improve its visibility. Some questions to ask yourself, “Can you expand the footprint? Build up? Make individual units larger or smaller?” Rethinking retail spaces and incorporating as much quality retail gross leasable spaces is key. Sometimes less is more meaning there is not a need for a big-box tenant in each shopping center, but for food, fitness and entertainment retailers can be a value-add for many neighbourhood shopping centers. Smaller spaces have the ability to generate higher rents in the long run.
4. How to Maximize Net Income
As with anything else in life, work and investing, it’s not the top line, which is so important. It is how much you net at the end of the day, so after you’ve done all you can to maximize the leasable space you need a game plan to maximize the net rents. Estimate beforehand what you are prepared to spend for tenant improvement allowance in order for the tenant to retrofit or renovate their space, or if you decide that instead of a full-service lease you’ll offer a gross lease. Whatever you choose, you should have your game plan beforehand as this will aid in maximizing the net rents.
Other critical factors at play here include:
- Property management expenses
- Tenant relations
- Drafting leases that offer more upside potential than just base rent
- Relationships and better pricing with vendors and contractors
- Maximizing foot and vehicle traffic
- Legal structure for legally minimizing taxes
Canadian commercial property can be a great investment. Real success will depend a lot on the above factors, finding out what you don’t know, leveraging experts who do know, and always looking for ways to foster a healthy tenant mix are amongst the things that make the difference.